Posco E&C has achieved a return to profitability in the first half of this year through disciplined management. However, it has secured no new orders in new businesses such as nuclear power, hydrogen, and offshore wind that could replace its housing operations. Analysts point out that the company must accelerate visible results in new businesses to reduce its dependence on housing.
According to the Financial Supervisory Service's electronic disclosure system, Posco E&C's operating profit for the first half of this year reached 97.4 billion won, turning from a loss in the same period last year to a profit. This was achieved by offsetting an operating loss of 94.7 billion won in the plant division with operating profit of 189.8 billion won in the construction division.
Rather than expanding its external footprint, the company focused on managing cost ratios and financial risks, lowering its annual new order target to 12.1 trillion won, a 20.5 percent decrease from last year's performance of 15.2376 trillion won. New orders in the first half also fell 33.6 percent to 6.7926 trillion won from 10.2257 trillion won in the same period last year.
To improve profitability, the company also streamlined its organization. After promoting its nuclear business division at the end of 2023 and subdividing its hydrogen and offshore wind promotion teams, it integrated its infrastructure business division into its plant business division at the end of last year, compressing operations into two divisions. It also reduced executive-level positions by roughly 20 percent and consolidated dispersed sales functions.
New business results remain absent from books
While disciplined management has strengthened profitability, new business results are not appearing on the order books. As of the first half of this year, major nuclear and accelerator projects reflected in the order ledger amount to around 450 billion won, including Shin Hanul units 3 and 4 with a stake of approximately 290 billion won and the Ochang synchrotron radiation accelerator at 164.2 billion won. There are no new formal contracts across all areas of hydrogen energy and offshore wind. In particular, among new orders in the first half of this year, external order performance in core new designated business sectors such as nuclear power and small modular reactors is virtually nonexistent. The vast majority of newly ordered plant and eco-friendly volumes consisted only of orders from group affiliates such as Posco Future M.
Among the first half's total order backlog of 51.4246 trillion won, the nuclear division backlog, which is a new business under the articles of incorporation, stood at only 410.4 billion won, representing just 0.8 percent of the total. The hydrogen and offshore wind sectors had no entries listed as individual projects in the order backlog details table. Despite reorganizing dedicated teams, the company has failed to fill its actual order coffers.
Housing decline outpaces new business progress
The delay in new businesses while reducing housing operations is a burden. Posco E&C has avoided bidding in high-risk redevelopment areas such as Mokdong and Seongsu in Seoul, securing projects mainly through negotiated contracts. Nevertheless, apartments still account for 54.4 percent of orders over the past year, exceeding half. Overseas business accounts for only 5.1 percent, with the gap left by reduced housing filled by orders from Posco group affiliates at 23.0 percent.
This contrasts with Daewoo E&C, which has raised its annual order target to 27 trillion won, leading with organizational improvements and overseas new businesses. Daewoo E&C has diversified its portfolio by securing major projects in succession, including a Czech nuclear plant estimated at 3 to 5 trillion won and overseas liquefied natural gas plants. The defensive approach of Posco E&C, which has both underperformed in new businesses and lowered its order targets, stands in stark contrast.
A Posco E&C official said, "We are continuously pursuing projects in areas of interest such as data centers through dedicated organizations, and substantive discussions will emerge once they come into view. New business promotion is not merely a matter of executive will but a priority business for the entire group and a strategic direction for the company."
Original Korean article: economist.co.kr
English brief by Korea Wind Intelligence, koreawindintel.com
